By May 31, 2018, Consumers Energy wants to get out of a power purchase agreement with Entergy for electricity produced by the Palisades nuclear plant in Covert, south of South Haven on Lake Michigan. Entergy looks to refocus its operations and exit the merchant generation plant business. The power purchase agreement was set to expire in April 2022. Courtesy Photo

Future of Palisades nuclear plant in the hands of state regulators

Jackson-based Consumers Energy remains in discussions with the Michigan Public Service Commission over its plan to end an agreement to buy electricity from the Palisades nuclear plant in Van Buren County.

Consumers, which signed a power purchase agreement for nearly all the plant’s energy in 2007 after selling the facility to Entergy, continues to make the case for getting out of the agreement by May 31, 2018. The reason: Although the agreement was scheduled to expire in April 2022, Entergy wants to close the plant permanently in October 2018.

The MPSC wants to make a decision on Consumers’ financing plan by Aug. 31 of this year. The commission also looks ensure that the utility will be able to maintain the reliability of the grid without a significant spike to emissions, and determine whether the plan will save ratepayers money in the years ahead.

To replace the roughly 800 megawatts of capacity at Palisades, Consumers says it will rely on a multi-part approach. That plan includes more emphasis on energy efficiency, increased “demand response” from commercial and industrial users, an expansion of its Cross Winds Energy Park in Tuscola County, and the conversion of its 60-megawatt coal plant in Manistee to a 225 MW natural gas-burning plant.

A majority of the replacement capacity — 5,000 gigawatt-hours annually between 2018 and 2022 compared to the 6,800 gigawatt-hours Palisades currently provides — will come from importing electricity from nearby states, according to Consumers’ plan.

A Consumers spokesperson referred questions to the company’s Jan. 6 filing with the MPSC.

“The cost of operation and the business risks associated with Palisades — a single-unit merchant plant — have turned out to be higher than originally anticipated in 2007, and are expected to only get higher,” the company stated in its filing in early January.

The state’s agency for energy policy said it continues to monitor the proceedings.

“In terms of looking at the affordability and reliability implications of a shutdown, that’s fully before the MPSC and is something we very much expect they will make the right decision on, whatever that is,” said Valerie Brader, executive director of the Michigan Agency for Energy. “As for lower emissions, that certainly is something that has to be evaluated, but (Consumers) looks to be heading into a future of fairly low emissions either way.”

In December, the MPSC directed Consumers to respond to a series of questions about alternatives to closing Palisades and how that would impact reliability and affordability. After the company’s Jan. 6 response, the MPSC issued a second order on Jan. 20 seeking more information about cost savings, reliability and risk management.

Entergy and Consumers have reported that closing Palisades early will result in a total of $344 million in gross savings. Those savings would be split evenly as a $172 million buyout payment from Consumers to Entergy, and another $172 million to be allocated among Consumers customers. The utility intends to file plans to pay the buyout fee through rate recovery, replacing “relatively high-cost debt and equity with lower-cost debt in the form of securitization bonds,” according to the MPSC.

The plan is expected to increase transmission imports into the state and increase power supply costs in the Midcontinent Independent System Operator’s (MISO) region by 59 cents per megawatt-hour, or $4 million.

Entergy also will be required to file decommissioning plans with federal regulators, and MISO, which manages the grid across the region, will determine whether the plant needs to stay open to maintain reliability.

ENVIRONMENTAL CONCERNS

Unlike in states such as Illinois and New York, environmental groups in Michigan generally support closing Palisades. In those states, advocates have pushed to keep open economically struggling nuclear plants — which are challenged by low natural gas prices and increasingly cheaper renewables — by providing billions of dollars in subsidies primarily because nuclear is a virtually carbon emission-free generation source.

According to MPSC filings, closing Palisades is part of Entergy’s broader plan to get out of the merchant generation plant business and instead focus on its utility revenue. The company plans to sell and decommission nuclear plants in Vermont and New York as well as shut down a nuclear plant in Massachusetts.

Brader said the Palisades plant is unique from nuclear plants in Illinois and New York because Palisades is “making money, but the company wants out of the business.”

Anne Woiwode, conservation director for the Michigan chapter of the Sierra Club, says her group “applauds” the plant’s closure because of concerns over nuclear waste storage near the Great Lakes and a history of other environmental problems at Palisades.

“This is a plant that should have been shut down a while ago,” Woiwode said. “This isn’t a question of keeping this plant going because it somehow has value in offsetting carbon emissions. That’s true of nuclear plants throughout our state — they are on the shores of the Great Lakes with no long-term plan for the disposal of the waste.”

Waste disposal has also been a concern for the Snyder administration, which has hoped for better guidance from federal regulators on long-term waste management plants.

“Gov. Snyder has said since he took office that we need to have a waste strategy that doesn’t involve leaving waste on the shores (of the Great Lakes) indefinitely,” Brader said. “We always hope to see action on the federal government side.”

QUESTION OF LOCAL IMPACT

The Sierra Club also is following the proceedings to ensure the early closure won’t end up costing Consumers customers more, and because the plan relies heavily on making up the lost generation with natural gas.

“The big picture about what to do with power issues needs to be emphasizing not just shutting down Palisades, not burdening customers with the cost of closing it and not simply switching to natural gas as the alternative,” Woiwode said. “What we really want is for Consumers to be prioritizing efficiency and renewables as the first steps to fill the gaps left by Palisades.”

However, the main opposition behind closing Palisades is its local economic impact. In general nuclear plants provide strong property tax revenue as well as employment.

In late December, former Republican state Reps. Aric Nesbitt, Al Pscholka and Earl Poleski led a resolution opposing the plant’s early closure, largely because of the anticipated loss of nearly 600 jobs and the potential reliability impacts.

Upon news in December of the planned early closure, Snyder said the state would be ready to provide assistance to the community, such as job training.

“No matter what the eventual decision is, it is important that we do everything to help the region adapt to a potential future without Palisades,” Snyder said at the time. “The responsible thing to do is put a plan into action now to help our neighbors in Southwest Michigan prepare for a significant change in their communities.”

MiBiz energy news coverage is supported by Consumers Energy, a public utility that provides natural gas and electricity to 6.6 million Michigan residents. For more information, visit consumersenergy.com.